6 Factors Will Hasten Or Defer Peak Oil Demand

We haven’t reached peak oil consumption globally, also known as peak demand. We are likely to reach it globally by 2050, but it’s unlikely to occur before 2030 at the very earliest. There are six major factors which make defining exactly when it will occur very difficult. I haven’t seen any modelled analysis (including my own projection related to electric cars) which includes all six.

When you see yet another prediction of peak demand or peak oil, use this as a handy cheat sheet to see how much weight to put upon the analysis.

Peak Demand is Different than Peak Oil

It’s important to separate the meaning of peak demand from the previously understood meaning of peak oil. That term, commonly referred to as Hubbert’s Peak, suggested that economically extractable oil reserves were finite and that the peak of what was globally economic to extract was going to occur. Hubbert himself suggested the 1980s would see this, while others suggested every year since. They were all, similar to Malthus, wrong.

The peak production theory assumed that innovations in extraction and processing were stagnant, when in fact multiple innovations — not least of which hydraulic fracturing or fracking — have increased our ability to produce oil. Now bounds on production are economic choices, not technical or resource limitations. This is important to understand because it has implications for demand that I’ll get into shortly.

There are multiple factors to consider when looking at the question of peak demand. The short list are electrification of transportation of various types, economic growth in areas currently with fewer cars, renewables plus grid innovation, urbanization, other uses for oil, and induced demand.

Electrification of Transportation: Hastening

The first is relatively obvious. Electric cars don’t use oil except as a lubricant in some areas, in their tires, and in rubber hoses and reservoirs for brake fluids and the like, trivial compared to burning gallons of it to move around. The more electric cars there are, all else being equal, the less oil will be burned.

While almost every major automotive manufacturer has realized that this is the global direction and that they have to get behind it, electric cars are still well under 1% of all cars on the roads today. And as the average car is driven for well over a decade, replacing the existing rolling stock is going to take decades.

Also, electric cars are well ahead of other forms of transportation in the curve to replacement. Buses are much closer to the beginning of the curve. Trucks are just starting along it. Electric planes have just been commercialized and it will be a decade before electric powertrains on interurban commuter jets will be seen. Electric freight trains already exist in many places for the simple reason that freight trains have been diesel electric hybrids for decades, so putting in links to overhead wires in key routes has been a trivial extension.

More Cars: Deferring

Globally, cars have been increasing in numbers by about 4% a year. This is a huge factor. There are around a billion cars on the road right now. The number varies substantially from analyst to analyst, but the billion number is sufficient for this answer. The 4% increase means that next year another 40 million net vehicles will be on the road after new car sales and old cars being junked. According to the IEA, there were only about 2 million electric cars on the roads globally in 2016. The disparity between net new cars vs electric cars means that for at least the next couple of decades, there will be a lot of internal combustion cars on the roads.

Renewables + Grid Innovation: Hastening

A quite absurd amount of diesel and bunker oil is used to generate electricity in various parts of the world. In archipelagos, such as Indonesia with 6,000 inhabited islands, a large number of the islands depend on diesel- or oil-burning generators of electricity.

With the plummeting cost of microgrid technology — solar (especially) and storage — more and more of these islands, remote northern islands, and big chunks of Africa are able to move away from fossil fuel generation and get stable power. And with the expansion of stable grid technologies and management, many formerly isolated areas are now tied into lower petroleum sources of electricity. Finally, high-voltage direct current (HVDC) transmission is tying more islands to more sources of non-petroleum and non-fossil fuel electricity. But these are capital-intensive shifts in areas of the world which don’t have a lot of capital. They are proceeding in fits and starts, but it’s slow progress.

Urbanization: Hastening

Globally, the world has been urbanizing for a couple of centuries. That’s only accelerating now, with cities providing the vast majority of opportunities and amenities of all types. The more developed the country, the larger the percentage of its population live in cities.

And cities provide a lot of opportunities for people to live without cars, something increasingly understood to be a societal positive. Urban transit is the obvious factor, but so are walkability and bikability. Carshare programs, taxis, and new entrants such as Uber and Lyft also reduce demand for personal automobiles and put more miles on the cars that do get sold, but fewer per capita. People not having cars but taking transit, walking, or biking reduce petroleum use. Urban areas also tend to have strict regulations which prevent using oil furnaces for heating, so as urban populations grow, that use of oil diminishes.

Other Uses: Deferring

While the dominant uses of oil are for transportation, generation, and heat, it’s also used as a feedstock for any number of different things. Every day, we eat oil products, eat food grown with oil-based fertilizers, wrap things in oil-based plastic wraps, and put things in plastic tubs. These uses are only increasing. The good news is that these types of oil use don’t lead to putting a lot of CO2 into the air. The bad news is litter and oceanic plastic waste.

Induced Demand: Deferring

In behavioural economics, induced demand is the result of oversupply of a commodity. Since it’s cheap and convenient to use, it is used. As oil’s peak demand approaches, its price per barrel will fall. In the absence of global governance that aims to avoid this, more companies will use oil because it will be cheaper than alternatives.

Any analysis of peak demand, including one that I published a couple of years ago, which doesn’t include all of these factors, is bound to be inaccurate in bigger and smaller ways. At the very best, I see demand for gasoline for cars globally peaking in 2030 and declining below 2014 levels in 2040. And that’s got nothing to do with other uses for oil.

About the Author

Michael Barnard Mike works with startups, existing businesses and investors to identify opportunities for significant bottom line growth in the transforming low-carbon economy. He regularly publishes analyses of low-carbon technology and policy in sites including Newsweek, Slate, Forbes, Huffington Post, Quartz, CleanTechnica and RenewEconomy, with some of his work included in textbooks. Third-party articles on his analyses and interviews have been published in dozens of news sites globally and have reached #1 on Reddit Science. Much of his work originates on Quora.com, where Mike has been a Top Writer annually since 2012. He's available for consultation, speaking engagements and Board positions.

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